IHT And Gifting

[ColinElgin]

Hello looking for general help and guidance please regarding IHT and Gifts

I am currently a 55yr old male widowed with 2 financially independent children.
My Assets are as follows House- £2.4 million, Bank £430,000 approx, Unit Trust £350,000, Investment Bond £455,000
I am confident that i will have adequate income from pensions etc in retirement.

I am happy to make gifts to my children to help reduce Inheritance Tax but rather than make outright gifts i would rather use some form of trust.
I have been reading various articles about Loan Trusts and Discounted Gift Trusts my main questions are as follows

1- Can the Bond or Unit Trust be transferred directly into either the Loan Trust or DGT or do these assets have to be cashed in first.
2- In relation to the income from these Trusts do i have to take the income or can i elect to forego this and start income at a later date.

PS. I am aware that it is a no go area to gift my house and continue to live in it and that even if i were to do this and pay a rent it is still fraught with difficulties

Many Thanks

[blackdano]

You sure don't like parting with it!

[Anthony Nixon]

You are still relatively young to be giving much away. Perhaps the solution is just to give £325,000 to a trust now, and look to repeat this with a fresh nil rate band in seven years time?

You might also look at insuring your life, perhaps just for a limited term, which could be cheaper than you think, rather than the whole of your life.

You can give away only £325,000 to a trust before you must pay immediate 20% IHT.

This might be a suitable vehicle for some of your unit trust or investment bond holdings. There would be no immediate tax consequences of assigning the investment bond. A gift of the unit trust would be a disposal on which CGT is theoretically payable, but by giving this to a trust you could hold over any gains (ie defer the CGT).

If you wanted to give away more, you could also create a bare trust for your children, under which you remained a trustee and so in effective control. Again the investment bond could be assigned without immediate tax, but this would not be suitable for the unit trust, since you could not hold over gains.

You are right to be cautious about the house, but there are some possibilities. If either of your children lives with you, you can give them a part share without problems with the anti-avoidance rules. Or you could raise funds by a mortgage and invest in products qualifying for business property relief, which a good IFA could guide you on.

All of these ideas are ones where you get the IHT saving by parting completely with any benefit from what you give away.

Loan trusts and discounted gift trusts are all very well, but both are specifically designed for those who want to still benefit from what they have given. It sounds as if you do not think you are in this category and they may be more efficient planning available to you.

Do not hesitate to get in touch if you would like to discuss any of these ideas further.


Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224